Centralised or not?

Many of my students will have worked through the example of Ocado as a case study in e-business. There are lots of issues around it, but one of the key issues is to contrast Ocado, which has a fundamental business model based initially around a single fulfillment centre in Hatfield, not far north of London, with the business model adopted by Tesco for internet shopping, which was fundamentally highly decentralised and used local shops as distribution centres. The aim is not to present one approach as intrinsically superior to the other, although it’s surprising how often some students do defend a preference for one or another as though it’s a religious belief. Rather, it’s to show that this sort of decision does affect the type of strategy that an Internet supermarket should pursue. And also that each of these supermarkets chose their strategy in response to a particular set of conditions.

Of course students often point out that the Ocado model isn’t quite as centralised as it looks. For a start there is now a second major distribution centre in the midlands. But also the centralised system depends on a hub and spoke approach. One of the smaller depots that acts as a spoke is in Byfleet in Surrey. Those with knowledge of the area will recognise this as the sort of affluent, reasonably well-populated territory that Ocado sets out to serve, and those with inclinations towards systems thinking may recognise this as where Stafford Beer lived.

Ocado is also interesting because of the (at times rather fraught) relationship with Waitrose. But it’s significant that perhaps the partnership with Ocado paved the way for Waitrose own-brand goods to be sold through a variety of outlets. This move to sell Waitrose products on Eurostar services between London and the continent provides another outlet for their brand, along with the rather entertaining idea that a French or Belgian visitor to Britain could dine on a Waitrose Croque Monsieur on the way.